How the Secure Act Could Affect Your Estate Plan

On January 1, 2020, a federal law went into effect that can have a significant impact on your estate planning regarding retirement accounts. The law, called the Setting Every Community Up for Retirement Enhancement Act (SECURE Act), changes the guidelines for the payout of retirement savings to beneficiaries after the account holder passes away.

Prior to this year, beneficiaries could generally receive distributions over time through their life expectancy. This allowed them to earn tax-deferred returns on the investments. The SECURE Act now limits a beneficiary’s ability to stretch out payments for certain beneficiaries. The tax implications will now be different for these beneficiaries, so it is important to discuss this with your estate planning lawyer to adapt your estate plan if needed to protect the interests of your beneficiaries.

Accelerated Payout Timelines

Some beneficiaries – such as your children or a trust benefitting your children – will be required to receive all distributions they are owed within ten years. This is a much shorter time than if they took minimum distributions over the course of their lifetimes. This also significantly increases income tax liability during this ten-year period for many people.

The ten-year term requires all payments to be made by December 31 following the tenth anniversary of the plan participant’s death. While beneficiaries can take distributions before the ten-year deadline, they are not required to do so.

Considerations Regarding the Ten-Year Rule

Estate planning attorneys will take the new rules under the SECURE Act into consideration when planning for clients with retirement accounts. There are different factors to take into account, including:

• Roth IRAs are not subject to federal income tax, so the tax liability for the accelerated payout is not an issue for this type of retirement account. It might be wise for some people to convert a traditional IRA to a Roth IRA depending on the tax brackets of the account holder and the beneficiaries.
• Generally, the SECURE Act only applies to deaths starting in 2020. However, if the account holder passed away in 2019 or before, the ten-year payout requirements might still apply if the named beneficiary passes away. It is important to consider the SECURE Act and how it applies anytime someone passes away, whether they are the account holder or beneficiary.

Tax laws and other regulations are constantly changing, and they can have significant effects on your estate and beneficiaries. You want to ensure you have the right legal guidance from a lawyer who knows how changes in the law might impact your estate plan.

Consult with a Santa Ana Estate Planning Attorney Today

If you would like to discuss creating an estate plan or you would like to learn whether you need to adjust your existing estate plan due to the SECURE Act, contact the Law Offices of Roshni T. Desai. Call 714.694.1200 or contact us online to set up a consultation with an experienced Santa Ana estate planning lawyer. We are ready to help you make the right choices for your beneficiaries.